February 1, 2024 - BV

BrightView's Boots: The Untold Story Behind a 20 Basis Point Margin Swing

BrightView Holdings Inc., the landscaping giant, just reported a strong second quarter, exceeding margin expectations and reaffirming EBITDA guidance. The headline news? A strategic decision to "unwind" their non-core aggregator business, known as BES. This, coupled with the sale of their U.S. Lawns franchise earlier this year, has the market buzzing about a BrightView resurgence. But what if there's a deeper story here, one hidden in plain sight within the earnings call transcript? What if the secret to BrightView's future isn't just about shedding dead weight, but about the surprising power of...boots?

Let's delve into the details. BrightView's management, under the leadership of CEO Dale Asplund, has embarked on a mission to transform the company, unifying operations and focusing on "profitable growth". The unwinding of BES, which primarily outsourced work to local providers, represents a clear commitment to this vision. It eliminates the risk of inconsistent service quality damaging BrightView's hard-earned brand reputation. Brett Urban, BrightView's CFO, highlighted the financial impact, stating that the BES unwind would have "no impact to our EBITDA. In fact, we anticipate an annualized EBITDA margin benefit of approximately 20 basis points."

On the surface, this seems like a straightforward move – shed an unprofitable business, reap a marginal benefit. But the real story might lie in the subtle cultural shift that's brewing within BrightView, a shift that's directly linked to this decision. It's a story that starts with…boots.

Asplund, in his characteristically hands-on approach, chose to conduct the earnings call from a local branch in Elmhurst, Illinois. He emphasized the importance of connecting with frontline employees, even taking part in their morning "stretch and flex" routine. This focus on employee well-being extends beyond symbolic gestures. BrightView recently partnered with Red Wing Shoes to provide over 18,000 employees with high-quality footwear through their "Boots program."

Asplund described the initiative as "an investment in their safety and well-being," but also acknowledged its impact on employee morale, noting the "incredible" reaction from team members. It's this investment in employees, coupled with a renewed emphasis on customer service, that forms the foundation of BrightView's transformation.

Here's where the hypothesis emerges. The 20 basis point margin benefit from the BES unwind might be more than just a direct result of shedding unprofitable revenue. It's a reflection of a larger cultural shift. By investing in their employees and empowering them with the tools (including, yes, boots) to excel, BrightView is creating a virtuous cycle. Happy employees deliver superior service, leading to improved customer satisfaction and retention. Higher retention, in turn, reduces customer churn and acquisition costs, directly impacting profitability and ultimately driving those margin gains.

Impact of Customer Retention on Profitability

While BrightView doesn't publicly disclose customer retention rates, Asplund revealed a concerning trend in the Q2 2024 earnings call: "Unfortunately, when you look at the business today, our levels of retention are below where they were when the company went public." He further stated that branches with 90% to 95% retention are "growing and they are growing profitably," while those with lower retention are struggling. This suggests a clear correlation between retention and profitability.

BrightView's efforts to improve employee morale and customer service through initiatives like the Boots program are likely playing a crucial role in reversing this retention decline, contributing to the margin expansion we're seeing.

"BrightView is investing heavily in upgrading their fleet and equipment, nearly doubling their capital expenditure from the previous year. Asplund, describing the impact of new equipment on employees, said: "You could see the smile on the guys' faces when they had a new mower and a new truck." This investment, while aimed at reducing maintenance and rental costs, also signifies a commitment to empowering employees with reliable, high-quality tools."

The connection? Better equipment, alongside better footwear, translates to greater efficiency and productivity for frontline workers. This allows them to focus on delivering exceptional service rather than grappling with faulty machinery or uncomfortable footwear.

While quantifying the direct impact of these cultural investments on margin expansion remains difficult, the transcript offers compelling evidence that BrightView's strategy extends beyond simple subtraction. It's about investing in a culture of employee empowerment and customer satisfaction, a culture where boots, trucks, and mowers represent more than just line items on a balance sheet. They're the tangible expressions of a deeper commitment to building a sustainable, profitable future for BrightView.

Fun Facts about BrightView

BrightView employs over 18,000 landscaping professionals.

BrightView services over 8,800 office parks and corporate campuses across the US.

BrightView's development segment is a top 50 specialized construction company in North America.